HomeMy WebLinkAbout7/19/2022 Item 7b, Codron / Corey / Cohen - Staff Agenda CorrespondenceCity of San Luis Obispo, Council Memorandum
Council Agenda Correspondence
DATE: July 18, 2022
TO: Mayor and Council
FROM: Michael Codron, Director of Community Development
Tyler Corey, Deputy Director of Community Development
Rachel Cohen, Senior Planner
VIA: Derek Johnson, City Manager
SUBJECT: Item # 7b – REPEAL AND REPLACE THE CITY OF SAN LUIS OBISPO’S
MUNICIPAL CODE CHAPTER 17.138 (INCLUSIONARY HOUSING
REQUIREMENTS) TO UPDATE REGULATIONS FOR CONSISTENCY
WITH THE 6TH CYCLE HOUSING ELEMENT, AMEND TITLE 4 OF THE
CITY OF SAN LUIS OBISPO MUNICIPAL CODE TO ADD CHAPTER 4.60
TO ESTABLISH A COMMERCIAL LINKAGE FEE, AMEND
INCLUSIONARY HOUSING IN-LIEU FEES IN ACCORDANCE WITH
CHAPTER 17.138 OF TITLE 17, ESTABLISH THE AMOUNTS OF
COMMERCIAL LINKAGE FEES IN ACCORDANCE WITH CHAPTER 4.60
OF TITLE 4 OF THE SAN LUIS OBISPO MUNICIPAL CODE, AND AMEND
THE COMPREHENSIVE FEE SCHEDULE
This agenda correspondence is intended to respond to two written comment letters that
were recently submitted. One is from Donna Lewis (Attachment A) and the other is from
the Chamber of Commerce (Attachment B). The issues raised in these letters are
summarized and consolidated to ensure a clear response on each topic.
1) Public Engagement Process (noted as Comment #1 in the attached letters).
“I do wish that staff had more fully engaged the building, real estate, and business
community on the Inclusionary Housing ordinance. There were a couple of
presentations done, but I personally feel that more active and dynamic
engagement could have and should have occurred far earlier on with the
professionals that are most directly affected by changes to this ordinance.”
Staff Response: As discussed in the Council Agenda Report (PDF packet page
599), public outreach regarding the Inclusionary Housing Ordinance began in 2020
with the presentation to City Council on April 21 st about the completed Nexus
Study. On June 2, 2020, staff submitted a Memo to the Planning Commission
about the Nexus Study. The Nexus Study was used to inform new programs within
the 6th Cycle Housing Element Update. The Council Agenda Report identifies a
wide variety of other outreach performed to engage the community on the IHO
update.
Inclusionary Housing Ordinance – Staff Agenda Correspondence Page 2
Fundamentally, staff sees its work on the Inclusionary Housing Ordinance as part
of a continuum of housing program impleme ntation tied to the 2020 Housing
Element Update. It is important to remember that a s part of the Housing Element
update, staff facilitated eight presentations, meetings, online surveys, and a public
workshop (details of the public outreach are provided in Appendix G of the 6th
Cycle Housing Element). Participants of the community workshop and the online
survey were invited to answer the following questions: “What type of housing is
needed most in our community?” and “What housing issues exist in the
community?” Approximately 100 individuals participated in the in-person workshop
and online survey and identified affordable housing as the type of housing
needed most and the biggest housing issue of the community.
More recently, City staff has had the opportunity for substantial engagement with
a Chamber of Commerce task force that has provided valuable input for
consideration. This input has helped staff develop an important alternative for
Council consideration regarding the appropriate balance to strike rega rding the
amount of inclusionary housing required through the IHO update.
2) Table 2A has been effective and should be retained (noted as Comment #2 in the
attached letters).
“I simply don’t agree with the idea that Table 2A should be eliminated as it’s
perceived to have not produced the outcomes originally intended related to the
production of affordable housing.”
“Table 2A has been effective. The assertion that our community has ‘missed out’
on a tremendous number of Affordable units because of 2A does to consider the
number of projects that would not have come to fruition at all, would have included
fewer total units - and thus fewer Affordable units - or would have taken many more
years to make it to market; Table 2A should be modified, not eliminated.”
Staff Response: As discussed in the Council Agenda Report (PDF packet page
596) the purpose of the IHO update is to produce more affordable housing. Table
2A was established as an amendment to the original IHO to encourage the creation
of projects with higher density and smaller unit sizes, which would be considered
affordable-by-design within the City. The intent was for these smaller units to sell
or rent at prices affordable to moderate- or low-income households.
This concept has not produced affordable housing in practice. Table 1 below
provides a snapshot of recent projects that have utilized Table 2A and shows how
many affordable, deed-restricted units were not built in lieu of Table 2A units.
Unfortunately, if the results of Table 2A are smaller homes on smaller lots, those
homes are still not affordable to households earning 120% or less of Area Median
Income (AMI). As a result, the elimination of Table 2A is recommended to increase
the production of affordable housing, while other initiatives are being pursued to
implement Housing Element programs, consistent with the Major City Goal work
program.
Inclusionary Housing Ordinance – Staff Agenda Correspondence Page 3
While it is possible that some of these projects may not have moved forward
without Table 2A, the issue should not be looked at in isolation. The projects listed
below include “expansion area” projects where the requirement is currently 15%
(5% low AND 10% moderate). These projects (identified with an *) show a bigger
gap between the number of affordable units provided with or without Table 2A. The
recommendation before the Council is for a lower percentage requirement in these
areas, and a higher requirement in other parts of the City to accomplish a single
standard that all projects subject to the IHO can adhere to. The policy decision for
the City Council is about how much affordable housing the City should require as
a percentage of market-rate housing development. The feasibility analysis that the
current recommendation was based on indicates that development would be
financially feasible with the proposed affordable housing percentage requirements.
However, if this amount is considered too high by a majority of Council Members,
then an alternative is provided to help the Council find the right policy balance with
its decision.
Table 1 - Recent projects that have utilized Table 2A
Year
Approved Project Name Number
of Units
Number of
Affordable
Units
Income Level
Number of
Units w/out
Table 2A
2019 Terraza 28 1 Moderate 2
2021 Bullock Ranch* 192 7 2 Low, 5 Mod 29
2017
West Creek
(Vintage & Noveno)* 172 10 Moderate 26
2018 The Connect 78 1 Moderate 4
2020 Laurel Creek 100 1 Moderate 5
2016 The Yard 43 1 Moderate 3
2005 Avivo 161 2 Moderate 9
2018 Twin Creeks 94 3 2 Low, 1 Mod 5
2020
Orcutt Road
Apartments 10 1 Moderate 1
Total 878 27 84
* Projects located within Expansion Areas have an Inclusionary Housing Requirement of 15%
3) State Density Bonus Law Option (noted as Comment #3 in the attached letters)
“…produce an example of how State Density Bonus Law would replace Table 2A …”
Staff Response: The Council Agenda Report (PDF page 597) provides a
discussion about how a new housing project can utilize the State’s Density Bonus
Law (DBL). The DBL provides incentives for developers in the form of an increased
number of market-rate units, concessions to standards (such as parking, setbacks
and building height) where necessary, and incentives that could include an
additional density bonus to allow for more market-rate housing. DBL projects are
exempt from the IHO.
Inclusionary Housing Ordinance – Staff Agenda Correspondence Page 4
A developer who meets the requirements of the state law is entitled to receive
these benefits as a matter of right. In the case of a project that provides at least
20% low-income units, the project would be automatically entitled to move forward
to the building permit phase if designed to meet the City’s Objective Design
Guidelines. There are a number of ways that a project can qualify for a density
bonus. Even dedication of land to a qualified affordable housing developer under
the Density Bonus Law can provide for a 15% density bonus for the entire project,
and additional density bonuses would be available for t he affordable housing site.
4) Support more market rate units and less inclusionary units, particularly low income,
for-sale units (noted as Comment #4 in the attached letters)
“Requiring 5% low-income units & 5% moderate income for sale units in a new
development I fear will literally stop some projects from happening all together or
will force the production of higher end housing to offset the cost of providing the
affordable units.”
“When considering for sale units, a requirement of 5% low and 5% moderat e is
unreasonable and gets in the way of our goal to create more housing of all types.”
“… require 10% of for-sale units at the moderate, not low, level. Another approach
could be to lower the total for-sale requirement to 7.5% with 5% moderate and
2.5% low.”
“To truly get the most Affordable housing built, there should be flexibility in the style
and location of Affordable units if a market rate developer proposes including more
than the required amount of Affordable Housing in a project.”
Staff Response: As one of the alternatives in the Council Agenda Report (PDF
packet page 601) staff discusses that the affordable housing requirements and in-
lieu fee amounts contained in the IHO are based on a detailed analysis prepared
by the City’s consultant, Economic & Planning Systems, Inc. (EPS). Reducing
these requirements is not recommended, however, the City Council’s decision is a
pure policy choice, and the Council has plenary authority to make revisions as long
as they comply with applicable State and Federal housing law.
If the Council majority decides that a reduced affordable housing requirement best
balances all policy considerations, then staff would recommend reducing the for -
sale percentage requirement from 10% to 8% (3% low and 5% moderate). It must
be noted that there is alignment between the affordable housing percentage
requirement contained in the proposed IHO update and the corresponding in -lieu
fees. As a result, if this alternative is pursued the change should be made together
with a reduction in the in-lieu fee amount from $25 per square foot, to $20 per
square foot to maintain consistency with the feasibility analysis . Incidentally, the
alternative and resulting in-lieu fee would bring the rental and for sale requirements
into alignment and this is noteworthy given that the Chamber of Commerce Task
Force has indicated that they believe the rental requirements are reasonable.
Inclusionary Housing Ordinance – Staff Agenda Correspondence Page 5
If a developer provides more than the inclusionary requirement, they likely qualify as
a density bonus project and therefore are no longer subject to the IHO standards .
See the response under Comment #3 for more information on Density Bonus Law.
5) Support non-profit housing developers (noted as Comment #9 in the attached letters)
“While we appreciate the proposed fractional approach to smaller developments,
imposing a flat $25/SF fee for larger developments is not feasible. Fees should be
calibrated to a proportionate share of what a non-profit developer needs to secure
state and federal funds - as our original proposal does.”
“Non-profit builders are an essential part of our housing community and, unlike
market-rate developers, non-profits have access to programs that maximize output
of Affordable units. The Inclusionary Housing Ordinance should be structured in a
way that supports them, not tilts the balance so far in the favor of market-rate
developers building Affordable units.”
Staff Response: Each affordable housing project is not created equal, meaning that
depending on the location, builder, affordability targets, demographic target, each
project requires a range of support to make it feasible. The cost of the project and
need for local subsidy could be very different depending on the non-profit or for-profit
developer that is constructing the affordable housing. The City has contributed close
to $100,000 per unit for projects constructed by Habitat for Humanity, and much less
for projects that also leverage tax credits and other funding sources. The proposed
in-lieu fees are designed to provide a reasonable trade-off for a developer between
paying the in-lieu fee and building the affordable housing units. If the fee is too low,
then the developer will always pay the fee. If it is too high, the fee will never be paid.
As a result, the fees should not be considered as a policy item separate from the
percentage of affordable housing required by the IHO – the fees and percentage
requirements work together and should stay in alignment.
Staff agrees that non-profit builders are an essential part of developing additional
affordable housing within the community. However, it must be noted that a core
purpose of the IHO is to “include” affordable housing in every development.
Specifically, the Housing Element includes policies 4.1 and 4.2 that call for affordable
housing to be intermixed within neighborhoods and comparable in size, appearance,
and basic quality to market rate units.1 The IHO update accomplishes these policy
objectives. Additionally, when new housing units are constructed, the IHO requires
that the affordable housing units are constructed at the same time. Often, units
constructed by non-profit housing developers are not constructed until well after a
new housing project has been completed.
1 HE Policy 4.1: Within newly developed neighborhoods, housing that is affordable to various economic
strata should be intermixed rather than segregated into separate enclaves. The mix should be comparable
to the relative percentages of extremely low, very -low, low, moderate and above-moderate income
households in the City’s quantified objectives.
HE Policy 4.2: Include both market-rate and affordable units in apartment and residential condominium
projects and intermix the types of units. Affordable units s hould be comparable in size, appearance, and
basic quality to market-rate units.
Inclusionary Housing Ordinance – Staff Agenda Correspondence Page 6
Separately, in-lieu fees and the commercial linkage fees will be utilized to support
non-profit development projects. In addition, State Density Bonus Law allows
developers to dedicate land to qualified affordable housing developers, which
would exempt the project from the IHO. There are numerous examples in the City
of affordable housing projects constructed in this manner. In addition to the fees,
Staff agrees that the City should seek out additional funding sources to support
more affordable housing discussed further in Comment #8 below.
6) Less fees for commercial development (noted as Comment #10 in the attached
letters)
“The commercial linkage fee is close but based on intensity of use, $2.50/SF for
industrial and warehouse uses, and $5/SF for all other non-residential uses makes
more sense.”
Staff Response: The proposed commercial linkage fee is in alignment with the
fees that commercial projects are currently paying.
7) Owner occupancy requirement (noted as Comment #5 in the attached letters)
“If table 2A were to be kept in some form, consider options for deed restricting units
for Owner Occupancy for a period of up to 5 years in lieu of mandating deed
restricted units be built.”
Staff Response: Second homes and investor homes that remain vacant much of
the time may impact the community housing supply, and there are some Ci ty
regulations that address this in limited circumstances, including no net housing
loss in the Downtown and a prohibition on vacation rentals, as well as state laws
including SB 1079 that limits investors ability to buy up foreclosed properties, and
SB9 (the California HOME Act) applicable to new lot splits in single -family zones.
However, the need for below market rate units is critical, and in order to meet the
City's Regional Housing Needs Allocation (RHNA), such a trade -off to increase
owner occupied deed restrictions for market rate homes that impacts the increase
of affordable homes is not recommended. Administering and enforcing a covenant
that requires market rate units that are built under Table 2A is questainable.
8) Pursue additional funding sources to support more affordable housing (noted as
Comment #6 in the attached letters)
“It is imperative that we consider additional ways to produce Affordable Housing
including Enhanced Infrastructure Financing Districts, project-specific Community
Financing District, a regional housing bond, and/or dedicating a portion of existing
TOT- not just the Inclusionary Housing Ordinance and fees.”
Inclusionary Housing Ordinance – Staff Agenda Correspondence Page 7
“We should be immediately brainstorming supplementary funding sources to
provide for Affordable Housing such as a bond measure, recording fee on
purchase transactions (currently only on refinance transactions), transfer tax, sales
tax, etc. so that all members of our community are contributing to the solution. We
will never achieve the numbers we are mandated by the State to provide until we
look for more ways to create an ongoing and steady revenue stream vs. over
burdening those that are trying to build the housing we so desperately need.”
Staff Response: Staff agrees that additional funding sources should be sought
out to support more affordable housing. The Council Agenda Report (PDF packet
page 598) notes that there is a strong interest in pursuing other revenue streams
that could create even more affordable housing, including through a down-
payment assistance program. Staff is recommending that the City Council provide
direction to staff to investigate a variety of Federal, state, and local grant
opportunities and other options for creating revenue to su pport expanded
affordable housing programs. Dedicating already forecasted increases in sales
tax or General Fund revenues is not recommended as the City has already elected
to reduce Development Impact Fees (DIF) by 25% for new development and if
General Fund revenues are allocated for the constru ction of housing, potentially
significant policy and tradeoffs would need to be identified.
9) Operational issues associated with the IHO and other housing programs (noted as
Comment #7 in the attached letters)
Staff Response: It is important to note that these operational issues are relevant
to the City’s Affordable Housing Program practices but not dictated by the IHO.
As a result, these responses are intended to be informational.
a. Update purchase guidelines and administration of the Affordable Housing
Program.
Staff Response: Purchase Guidelines have been updated by staff as of
July 1, 2022 including equity interest in property and homeownership, and
staff is currently working with Housekeys on additional updates regarding
occupancy standards, in addition to rental compliance programs in
compliance with state law.
b. Locals first program may be not working out as well as hoped (not
accounting for all locals).
Staff Response: The locals first program is included for existing projects
through Development Agreements but will be limited city-wide due to
potential conflicts with state fair housing laws. For both Avila Ranch and
San Luis Ranch, the policy is resulting in more intra county residents moving
to SLO to be closer to jobs.
Inclusionary Housing Ordinance – Staff Agenda Correspondence Page 8
c. Deed restricted units and an equity share units should not be in the same
project.
Staff Response: Long-term affordability agreements and equity-share
agreements accomplish very different outcomes. For inclusionary housing,
the goal is for the affordable housing to remain affordable in perpetuity. This
is also an explicit aspect of units produced under the Density Bonus Law.
As a result, long-term affordability is required in these cases. The City has
other programs, such as Development Agreements, Planned Development
or other rezoning requests, and Specific Plan requirements where
additional affordable housing may be required (PD rezoning requires 25%
affordability for example). In these cases, staff believes that an equity-share
agreement would be appropriate. Equity-share agreements give the
homeowner the ability to recover more equity upon sale of the unit at a
market price, while providing the City with funding that can be used to create
more affordable housing elsewhere.
d. Improve management of the affordable housing program through
Housekeys.
Staff Response: Staff is continuing to onboard and engage with Housekeys
to improve management of the affordable housing program, including
reducing processing times, additional communication and education, and
improved registration processes. Housekeys is a consultant under contract
to perform as the City’s Below Market Rate (BMR) administrator. If the
conclusion after the initial contract term with Housekeys is that they are too
expensive, or not performing to the community’s satisfaction, then a new
RFP can be published to determine if there are better options available f or
BMR administration. As an alternative, the City could hire in house staff
funded through IHO program or General Fund. It is important to note that
nearly three (3) FTE are already funded to support the City’s complex
housing program.
For those of you that don’t know me well, my name is Donna Lewis and I live and work in the
City of SLO. I am a lender and the Branch Manager of Guaranteed Rate here in SLO and have
been in the mortgage business for nearly 30 years. I’ve had the pleasure over my career of
serving first time homebuyers of all types as well as every other type of client you might
imagine. Over the past few years, I’ve worked closely with the City and have handled financing
on the majority of deed restricted, for sale, low and moderate income units, including handling
all of the new construction affordable units at Moylan Terrace, Avivo, 9 on Rockview, South
Morros, etc. I’ve been fortunate to finance a number of homes in the Righetti Ranch area and
will be the preferred lender for the low- and moderate-income units at Avila Ranch.
With all that said, I am writing to you on a variety of topics related to the Inclusionary Housing
Ordinance and Affordable Housing in general. Sorry in advance, this is a long one, but I believe
a worthwhile read in anticipation of your review of staff’s recommendations related to the
Inclusionary Housing Ordinance.
I would start off by saying that I do wish that staff had more fully engaged the building, real
estate, and business community on the Inclusionary Housing ordinance. There were a couple of
presentations done, but I personally feel that more active and dynamic engagement could have
and should have occurred far earlier on with the professionals that are most directly affected
by changes to this ordinance. As a result, the Chamber put together a task force, of which I am
a member, and really got into the weeds on this. Staff & the task force will finally meet Friday,
the 8th, but it’s my understanding that this is also the date the Staff Report is due to Council, so
I don’t hold out hope that the Task Force will have much impact or influence on the way
information is ultimately presented to you.
So here are my thoughts…
Table 2A vs. State Density Bonus
I simply don’t agree with the idea that Table 2A should be eliminated as it’s perceived to have
not produced the outcomes originally intended related to the production of affordable
housing. Noveno is just one example of a project that benefited from Table 2A and produced
great outcomes in providing what I consider to be “affordable workforce housing”, even though
it may not have been restricted for low- and moderate-income buyers. These homes sold in the
mid to high $700,000 range and were affordable, by conventional underwriting standards, to
moderate & workforce homebuyers (most homes of similar size that were resale units across
town were selling nearly at or over $1 million while this development was being built out).
Of the 9 households I helped in this development,
• 5 were First Time Homebuyers & 1 was a move up buyer, and all lived in the City or
County
• The professions of the above individuals included…
o Non-Profit fundraiser
Comment #1: Public
engagement process
Comment #2:
Table 2A has
been effective
and should be
retained
Commented [CR1]: Comments have been numbered and
color coded to correspond with topic areas addressed in the
Agenda Correspondence
Attachment A
o Cal Poly employee & Sheriff’s Dept employee
o Biotech Engineer & Planner for Cal Trans
o PG&E Field Clerk
o Software Engineer & Housewife
o Self-employed Graphic Designer
Moderate income as defined by the City is in the $117k-$131k range so let’s call that $10k per
month…5 out of 9 of the families we assisted were in fact in a moderate income range or JUST
barely above it, while two more would be considered in a “workforce” range. These families
opted to jump into market rate housing at higher monthly payments with the idea that if they
own the home without a deed restriction, they will have a greater upside opportunity to gain
equity in the future. It’s possible, that without Table 2A, this project would not have been built
due to the number of inclusionary units that would have otherwise been required to be built.
The point here is that in most cases, workforce housing, that might not otherwise have been
made available without Table 2A, was made available. The smaller lot size and more compact
units, work for a wide range of people, and in providing it, it frees up other housing that will be
affordable for someone else. It’s important to note that staff has indicated that they are
working on a “Workforce” program, but we have yet to see what that means outside of the
currently inclusionary housing ordinance and proposed elimination of Table 2A, which is the
only mechanism currently to stimulate the production of smaller lot size, smaller unit,
workforce housing, without a heavy Inclusionary burden. Staff has indicated that State Density
Bonus Law already addresses incentives for density if a builder chooses to amp up the amount
of affordable housing it provides in a development. Table 2A, by contrast, reduces the number
of low- and moderate-income units a builder is required to provide, if the builder develops a
denser project with smaller lots & smaller units – i.e., more affordable by design. While it’s
clear that both the Council and Staff would prefer to see more affordable units be built to meet
the City’s RHNA goals, the unintended consequence of removing Table 2A may create a
scenario where projects are built with larger more expensive homes to offset the cost of
providing the mandated affordable units, eliminating the middle class/workforce product that
our city so desperately needs. We need ALL types of housing and FLEXIBILITY in the promotion
and production of affordable housing is key.
It should be noted that I strongly encouraged Staff to produce an example of how State Density
Bonus Law would replace Table 2A if it were to be eliminated and I would encourage you to do
the same. I am not a developer, nor an expert on State Density Bonus Law (I’ve read quite a
bit), but I do feel if Staff could show that it’s possible to build a project like Noveno or any other
project that used Table 2A with State Density Bonus Law, that this would go a long way in aiding
the conversation on this topic.
Comment #3:
Density Bonus
Law options
Attachment A
Deed Restricted Low & Moderate Income units – allow flexibility in how Low
Income units are produced
Requiring 5% low-income units & 5% moderate income for sale units in a new development I
fear will literally stop some projects from happening all together or will force the production of
higher end housing to offset the cost of providing the affordable units. Currently, the Low-
income sales price limit for a 3-bedroom home is $244,200, whereas the Moderate-income
limit is $427,175. That’s a difference of $182,975 per unit, and a difference of $405,800 as
compared to the $650,000 cost to build a moderate/workforce unit as sited in the EPS
study. Producing Low Income for sale units is a significant impact to a developer and may make
a project financially unfeasible which is contrary to the goal of providing not just affordable
housing but more housing in general. Additionally, while attempting to create “equity” in
housing, we are creating a “lottery” which benefits very few households at the expense of all
other households in a development and in our community, where other buyers, who may be
of moderate-income means, are qualifying at a higher payment threshold and paying far
more monthly than their neighbor who scored one of only a very few low- or moderate-
income units in town.
I’d add, that in my experience, clients in a low category very often struggle to qualify to
purchase a home, even if deed restricted, for a host of reasons including very little credit or
poor credit, no savings for a down payment, debt obligations, or all of the above in some
cases. Those that can qualify are often pushing the limit of what they can afford. Based on my
experience in the affordable arena, for every qualified low-income buyer, we might have had
10-15 applicants that do not qualify. By contrast, for every qualified moderate-income
applicant, we might have had 3-4 applicants that do not qualify. I’d love to see every person on
the planet own their own home, but not all families and individuals are ready to own a home,
and this percentage is far larger in the Low-Income category.
I’d encourage as much flexibility in how low-income units are delivered and would encourage
not requiring 5% low income for sale units in new development (if 10% inclusionary is the
requirement, give the builder the option to provide all moderate for sale units or the low units
in a rental product, etc.). Making low-income units available in a rental product may be more
financially feasible to develop and is often more practical for a low-income family to transition
into, with the idea that they may then be able to ready themselves for ownership in the future.
Deed Restricting Market Rate for Owner Occupany for 5 years as a Tradeoff to
other Deed Restrictions
If table 2A were to be kept in some form, consider options for deed restricting units for Owner
Occupancy for a period of up to 5 years in lieu of mandating deed restricted units be built. This
would ensure that people purchasing are not investors, and the units would more than likely be
occupied by people who live and work here already. By limiting 2nd home buyers and investors,
the pool of buyer is thereby limited, creating less demand which in turn will keep prices lower
and more stable/affordable for those who wish to occupy.
Comment #4:
Argument for more
market rate and
less inclusionary,
particularly low
income for-sale.
Comment #5: Owner
occupancy requirement
recommendation. Does
not address inclusion of
targeted households
Attachment A
Look for ways to have more of the Community contribute to the Affordable
Housing solution
Putting the burden solely on development to provide Affordable Housing seems so
counterintuitive to stimulating the production of the variety of housing types we need in our
community. We should be immediately brainstorming supplementary funding sources to
provide for Affordable Housing such as a bond measure, recording fee on purchase transactions
(currently only on refinance transactions), transfer tax, sales tax, etc. so that all members of our
community are contributing to the solution. We will never achieve the numbers we are
mandated by the State to provide until we look for more ways to create an ongoing and steady
revenue stream vs. over burdening those that are trying to build the housing we so desperately
need.
SLO Worker First – consider tweaking this
This has turned out to be a bit more complex than anyone first considered. In speaking with
San Luis Ranch, they are having to hold out for 30 days to make sure a unit is exposed to a
buyer who is a SLO worker, before they can then move on to open the same home up to those
who work in SLO County for another 30 days, and then I believe after 60 days the unit can be
made available to anyone else interested. This may severely delay the time it takes to sell a
unit and time is money, which translates into the pricing of a home. With the market slowing
down, this could prove very burdensome to a builder to follow such a process rather than
simply requiring owner occupancy for a period. Additionally, the SLO Worker First idea didn’t
consider those who live and work here remotely (employed by a company out of area but living
here), and those who live here and are retired. These individuals should not be excluded if they
are already in the area and have established residency. Hopefully, this has already been
addressed.
Shared Equity vs. Long Term Deed Restriction – don’t put both in the same
project
The recommendation in the IHO is to allow a builder to sell some units with an Equity Share
deed restriction if the builder provides more than the minimum allotment of affordable units. I
don’t think this is a good idea. With neighbors living in the same neighborhood and in close
proximity, it makes far more sense to treat deed restrictions the same in any one
neighborhood, so as to not create a situation where one neighbor is deed restricted over the
longer term, and one is given an equity share agreement. And the way the Equity Share
agreement is being rewritten, there isn’t really any great benefit to a buyer under that
agreement that really separates it much from the Long Term Affordability agreement anyway,
at least as it was last proposed (in a meeting with Michael & Derek). Lastly, there is no material
benefit to a builder in having the Long-Term vs Equity Share agreement…the only benefit is that
Equity Share has been more accepted by the market vs. the Long-Term Affordability agreement
and in a tough market, anything that is more favorable to a buyer is a good thing.
Comment #6:
Recommendation to
pursue additional
funding sources to
support more affordable
housing.
Comment #7: Comments
regarding operational
issues associated with
ordinance and other
housing programs.
Attachment A
Down Payment Assistance vs. Deed Restrictions (or some combo thereof)
We’ve got to find a way to allocate affordable housing funds for the creation of a more robust
down payment assistance program. This would be particularly beneficial to Moderate and
Workforce buyers, allowing them to purchase not only inclusionary units but Market Rate Units
as well. I’d recommend setting aside some of the in-lieu fees for this purpose rather than ONLY
subsidizing Affordable for Rent Projects. Down Payment assistance continues to recycle over
time and can be used with any property so long as the buyer fits the definition of a Moderate or
Workforce buyer. When the home sells, the DPA is paid back with interest and can be reused
rather than being property dependent. Adding to “for sale affordable housing stock” adds to
the management of the units under the Cities purview, requiring more maintenance and
oversight. DPA funds simply get recycled and can be used by many and on any property so long
as the buyer meets the moderate or workforce criteria. Lastly, many first-time homebuyers
struggle putting together a down payment given that they are spending a fortune on rent and
other expenses. Having a down payment assistance program would allow them to enter the
housing market sooner than they might have otherwise been able to do. What if a developer,
instead of providing affordable units and instead of paying an in-lieu fee to the City, contributed
to a DPA fund that then subsidized down payments for any moderate-income buyer in their
project? Just trying to think outside the box here to reach the widest number of moderate and
workforce buyers in the community while at the same time creating some benefit for the
developer who is parting with a significant chunk of change to subsidize affordable housing
opportunities.
Update to SLO City’s Purchase Guidelines
Staff has been working on “updating” the guidelines for way too long. I’ve offered to pow wow
with Staff on this based on my experience with the program and at Moylan Terrace specifically,
but nothing has ever changed. There are a variety of things to clean up in the current purchase
guidelines including -
- # of household members based on bedroom count; currently a 1 person household can
purchase a 3 bedroom home and this has happened over and over again. Larger homes
with more bedrooms should go to a minimum household size, i.e. a 1 bedroom goes to a
1-2 person household, a 2 bedroom goes to a 2-4 person household, and a 3 bedroom
goes to a 3-5 person household. It should be a high priority to define and change this.
- Retirement income; guidelines need to consider and make accommodation for
someone whose income comes solely from assets in retirement. There are some cases
where a borrower shows assets which exceed the asset limitation (no more than 50% of
the purchase price of the home), but they rely on that asset to pay themselves in many
cases with no other source of income, so in my opinion these assets should not be
counted toward the asset limitation.
- Occupancy 10 mos out of year; I heard Housekeys say that occupying a home is defined
by someone who occupies 10 out of 12 months in the year. This should be in the
guidelines so it’s clear.
- Asset inclusions should be more clearly defined (see above example re retirement) and
consider not allowing someone whose already owned a home to sell that home and
Attachment A
purchase an affordable unit with those proceeds unless they are already in the
affordable housing program…in other words, the buyer should be a first-time
homebuyer or seller of a smaller affordable unit, and this is not the case currently. I’ve
seen people who have tons of equity, move that to an affordable unit because sale
proceeds are excluded from the asset inclusion which doesn’t seem to meet the intent
of the program unless they have relocated for a job here locally and meet all other
criteria.
- Income projected for next 12 months. – I heard housekeys say they “project” what
someone will earn over the next 12 months and would like clarity on what this means
exactly and would recommend an example of this in the City’s guidelines so people
applying understand the approach.
- Refi process and cash out; this is the biggest travesty in my mind. The City currently
disallows an owner of an affordable unit to refinance their home and pull equity back
out, even if it’s equity they’ve accumulated by paying down their mortgage. At the very
least, a homeowner should have the opportunity to pull out their own equity – up to the
original acquisition indebtedness. This allows the homeowner to make improvements
to the home, maintain the home, and to consolidate debts so that they may remain
financially stable while owning the home. I’ve seen numerous make sense requests be
denied in this regard which is unfortunate for the homeowner.
Housekeys
Finally…Housekeys. I congratulate staff and the Council for moving on the hiring of a consultant
to help organize, shore up and help manage the City’s Affordable Housing program. It’s been a
long time coming and we’ve needed a way for those interested in Affordable Housing to easily
find access to information and to continue to be made aware of it’s availability. With that said,
I have concerns with what we’ve experienced so far, even though I know that it’s all still getting
set up and I am sure much of this will improve over time. I’d propose that the City use
Housekeys to help shore up the program, and put systems in place to run the program, but
would encourage the City to stay engaged in the management of the program.
- Adminstrator is expensive; the administrator is acting as the City’s “agent” and as such,
on a resale they wish to charge 6% of the sale price, of which they will pay out 2% to a
listing agent and will keep the remainder; the City gets none of this fee. Note that
customary listing fee’s in SLO are 5% currently. Up to now, these units have been sold in
a traditional way, in the MLS, with a listing agent contracting with the seller to sell the
home and a buyer’s agent working to represent a buyer who may be interested in the
home (customarily 5% to the listing agent who then pays the selling agent 50% of that
with nothing going to the City in that case either). The buyer has always been required
to be “certified” as an affordable buyer and the fee for this has been $350 paid to
HASLO or People’s Self-Help Housing Corp. What I believe the City really wants and
needs is for the Administrator to certify a buyer in a compliant way, and to make sure a
new construction or resale unit is sold in a fair manner, giving the greatest exposure of
that unit to the local market. I am just not sure that 4% of the sales price should be
diverted to Housekeys as the Administrator in addition to fees they will charge the
buyer for the certification, etc. and would prefer to see buyers represented by a local
Attachment A
agent who can walk them through this process. Maybe there is a way to have the
Administrator act as the City’s agent for a fee of 5-6%, with 2% paid to a listing agent,
and another 1.5-2% going to the buyer’s agent that represents the buyer, with the
Administrator keeping the remainder. Low- and Moderate-income buyers NEED
representation and hand holding in a way that a remote Administrator simply won’t be
able to provide.
- Time to process an Affordable Unit. Housekeys has sited that it may take 60-90 days
for them to work through the process of holding a drawing, then holding a lottery, and
finally getting down to selecting an eligible buyer for a unit. THEN that seller and buyer
must go through the escrow process which no doubt may take another 30-45-60
days. I’m concerned that they will operate too slowly for most sellers or builders, and
this will be VERY frustrating. Something to keep an eye on.
- Selection of eligible buyers. A prospective buyer registers on their site, is then notified
of an “Opportunity Drawing” for which they can register interest. Assuming they
register for the drawing, they will then be placed in a “Lottery” for the unit. Because
there are so few units, and no doubt will continue to be very few units available, a
prospective buyer could literally be ready and waiting indefinitely, while never getting
an opportunity to purchase a unit. This is frustrating to me because I see certain
individuals do all the right things and work hard to get a unit, while others show up at
the last minute, can register, enter the drawing, and win the lottery. It just doesn’t
seem fair that there isn’t a better “cue” for those who take all the necessary steps to be
ready & get in line.
- Communication is key. This is concerning right out the gate. My hope is that
Housekeys will have a dedicated staff member that handles the City of SLO’s for sale
units so that the local Real Estate community and Lenders dealing with the program
have good support and prompt communication & can leave staff at the City alone.
- Concerned that we are adding an additional layer of bureaucracy…while the intention
is to organize and simplify the process, it may ultimately become far more complicated,
especially given that an out of area Administrator is being given a significant degree of
oversight. The City loses it’s ability to be nimble, flexible, and make quick decisions
where time is often of the essence.
- Housekeys registration process is very clunky…I am sure this will improve over time,
but I would encourage a staff member to create a profile on the Housekeys
website. I’ve had multiple clients call me back after I’ve encouraged them to register on
the site, and most are confused and unclear if they’ve followed the necessary steps to
be notified if a unit comes up. I created a profile myself and understand now why
people are getting confused. Really, all a buyer needs to do is get an applicant ID to
ready themselves for an opportunity and that should be the first step on their
website. Instead, it encourages first doing online homebuyer training and lays out many
other steps beyond getting an Applicant ID, which it seems is all that’s needed to get “in
the system” to be notified of opportunities.
I’ll stop there and thanks for reading. I appreciate all of you and your service. I wore myself out
on this one email and I realize you ready many, in addition to all the staff reports and
Attachment A
information that goes along with them. I don’t know how you all do it! Please feel free to
reach out to me on my cell if you wish to discuss any of these points further…happy to chat.
Attachment A
July 10, 2022
Dear Mayor Stewart and SLO City Councilmembers,
The SLO Chamber of Commerce has appreciated the many conversations we have had with your staff
over the past few weeks and are writing today to provide additional context to our original letter
regarding the proposed changes to the Inclusionary Housing Ordinance.
Through these conversations, it has become clear that we share the same ultimate goal of creating a
regulatory framework that results in many types of housing built to serve the varied needs of our
community. There are many elements of the proposed update that will work toward those ends,
including:
●The shift to one standard citywide approach rather than separate standards for expansion areas.
●Creating a separate pathway for projects that choose to work within the State Density Bonus
Law.
●Including all homes, not just multi-unit developments, in the Inclusionary Housing Ordinance.
●When considering for-rent units, 6% is a fair amount of affordability to require and it is
appropriate that for-rent be targeted to the low and very low income levels.
However there are also elements of this ordinance that will, if not amended, result in a failure to meet
the goal of creating more housing of all types, including Affordable. In light of the approximately 25%
raise in impact fees on July 1, it is particularly important the the changes proposed below be considered:
●When considering for sale units, a requirement of 5% low and 5% moderate is unreasonable and
gets in the way of our goal to create more housing of all types. As reflected in the City’s study,
very low and low income units can be produced more efficiently as rental housing or by
non-profit developers - we should follow that recommendation and require 10% of for-sale units
at the moderate, not low, level. Another approach could be to lower the total for-sale
requirement to 7.5% with 5% moderate and 2.5% low.
●While we appreciate the proposed fractional approach to smaller developments, imposing a flat
$25/SF fee for larger developments is not feasible. Fees should be calibrated to a proportionate
share of what a non-profit developer needs to secure state and federal funds - as our original
proposal does.
●Table 2A has been effective. The assertion that our community has ‘missed out’ on a
tremendous number of Affordable units because of 2A fails to consider the number of projects
that would not have come to fruition at all, would have included fewer total units - and thus
fewer Affordable units - or would have taken many more years to make it to market; Table 2A
should be modified, not eliminated. The Planning Commission showed interest in including
2A-style modifications down the road, however, to have a complete policy, those modifications
should be in the IHO from the start.
Attachment B
●Non-profit builders are an essential part of our housing community and, unlike market-rate
developers, non-profits have access to programs that maximize output of Affordable units. The
Inclusionary Housing Ordinance should be structured in a way that supports them, not tilts the
balance so far in the favor of market-rate developers building Affordable units.
●The commercial linkage fee is close but based on intensity of use, $2.50/SF for industrial and
warehouse uses, and $5/SF for all other non-residential uses makes more sense.
●To truly get the most Affordable housing built, there should be flexibility in the style and location
of Affordable units if a market rate developer proposes including more than the required
amount of Affordable Housing in a project.
●It is imperative that we consider additional ways to produce Affordable Housing including
Enhanced Infrastructure Financing Districts, project-specific Community Financing District, a
regional housing bond, and/or dedicating a portion of existing TOT- not just the Inclusionary
Housing Ordinance and fees.
Thank you for your consideration. Please don’t hesitate to reach out if you have any questions or would
like to discuss further.
Sincerely,
SLO Chamber Inclusionary Housing Task Force
Aaryn Abbott | Abbott|Reed Inc.
LeBren Harris | Hampton Inn & Suites/
TownPlace Suites San Luis Obispo
Rachel Kovesdi | Kovesdi Consulting
Donna Lewis | Guaranteed Rate
Damien Mavis | CoVelop
Kerry Morris | Morris & Garritano
Stephen Peck | Peck Planning & Development
Ken Triguero | People’s Self Help Housing
Attachment B